Best construction loan lenders in 2023

Most people can’t afford to design and build their own home or pay for major renovations out of pocket, which is why many lenders offer construction loans — shorter-term loans used to finance construction/rehabilitation of or addition to a residence. Here is Bankrate’s guide to some of the best construction loan lenders in 2023.

Lender

Credit requirements

Down payment minimum

Bankrate review

Cardinal Financial

580 for conventional loans; 550 for FHA loans

Varies

Cardinal Financial mortgage review

Garden State Home Loans

640 for conventional loans

Varies

Garden State Home Loans mortgage review

NBKC Bank

620 for conventional loans; 680 for jumbo loans; 620 for FHA loans; 620 for VA loans

Varies

NBKC Bank mortgage review

Reliant Home Funding

620 for conventional loans; 500 for FHA loans; 700 for adjustable-rate mortgages; 620 for renovation loans

Varies

Reliant Home Funding mortgage review

U.S. Bank

620 for conventional loans; 740 for jumbo loans

Varies; 20% for lot loans

U.S. Bank mortgage review

Valley Bank

Varies

Varies

Valley Bank mortgage review

Wells Fargo

620 for conventional loans

Varies

Wells Fargo mortgage review

Availability

Conventional, jumbo, FHA, VA, USDA, fixed-rate; refinancing

580 for conventional loans; 550 for FHA loans

Varies

Online

Cardinal Financial mortgage review

Availability

Conventional, jumbo, FHA, VA, USDA, fixed-rate, adjustable-rate; refinancing; home equity loan; construction and renovation loans; debt service coverage ratio (DSCR) loans; non-QM

640 for conventional loans

Varies

Branch locations and online

Garden State Home Loans review

Availability

Conventional, jumbo, FHA, VA, fixed-rate, adjustable-rate; refinancing; home equity line of credit (HELOC), home equity loan; construction and renovation loans

620 for conventional loans; 680 for jumbo loans; 620 for FHA loans; 620 for VA loans

Varies

Branch locations and online

NBKC Bank mortgage review

Availability

Conventional, FHA, VA, USDA, fixed-rate, adjustable-rate; refinancing; construction and renovation loans; flex-term; reverse mortgage

620 for conventional loans; 500 for FHA loans; 700 for adjustable-rate mortgages; 620 for renovation loans

Varies

Online

Reliant Home Funding review

Availability

Conventional, jumbo, FHA, VA, USDA, fixed-rate, adjustable-rate; rate-and-term, cash-out and streamline refinancing; home equity line of credit (HELOC), home equity loan; construction and renovation loans; investment property; interest-only

620 for conventional loans; 740 for jumbo loans

Varies; 20% for lot loans

Branch locations and online

U.S. Bank mortgage review

Availability

Conventional, jumbo, FHA, VA, USDA, fixed-rate, adjustable-rate; refinancing; home equity line of credit (HELOC), home staging line of credit; construction and renovation loans

Varies

Varies

Branch locations and online

Valley Bank mortgage review

Availability

Conventional, jumbo, FHA, VA, USDA, fixed-rate, adjustable-rate; refinancing; construction and renovation loans; investment property

620 for conventional loans

Varies

Branch locations and online

Wells Fargo mortgage review

Applying for a construction loan is similar to applying for a mortgage on an existing home, with a few extra steps and likely a longer timeline. Here are the basics:

Shop around for a construction loan lender.

Submit a loan application and your contract with the architect or builder and their plans for the project.

Be prepared to answer any questions your lender might have and provide any additional documentation as needed.

Construction loan lenders have varying requirements, but they are typically based on the amount you borrow. Similar to other types of mortgages, lenders determine your eligibility for a construction loan by evaluating your creditworthiness, income, debt-to-income (DTI) ratio and other factors. Here’s what to expect:

Credit score – Many lenders require a credit score of 680 or higher for a construction loan, but some might work with borrowers with lower credit scores.

DTI ratio – Lenders usually look for your debt obligations to total no more than 45 percent of your monthly income.

Down payment – Be prepared to put down 20 percent or more, unless you’re applying for an FHA or VA construction loan.

Construction plan – Lenders usually require a detailed plan before funding the first phase of the project.

Repayment plan – In addition to the construction loan itself, you must also qualify for permanent mortgage financing. The construction loan covers payments for the project during the building process and then converts to a permanent mortgage upon completion.

Construction-to-permanent loan – A loan to pay for construction costs, which then converts to a permanent mortgage once the home’s finished and ready for occupancy

Construction-only loan – A loan to pay for construction costs by disbursing funds in increments as project milestones are met; generally has a repayment period of one year or less

Owner-builder construction loan – A loan that operates like a construction-to-permanent or construction-only loan, but with one key difference: the borrower is also the builder

End loan – The mortgage on the property once construction is complete

Construction loans can be complex, which is why it’s best to work with a lender who has experience with this type of mortgage. To find the best mortgage lender and get the lowest-cost loan, compare several construction loan lenders and their rates and terms, and also compare your interactions with them. If you’re looking for responsiveness, for example, take note of this in your communications with the loan officer. Ultimately, the best lender for you depends on your goals, preferences and financial situation.

What’s the difference between a construction loan and renovation loan?

A construction loan is a short-term loan designed to help with the purchase of a plot of land and the construction of a home or pay for major renovations to an existing home. Renovation loans, on the other hand, pay for home improvements. This funding can come in a variety of forms, such as a personal loan or a government-insured loan, or by taking out equity in your home. Renovation loans aren’t as structured as construction loans; they’re usually unsecured, and borrowers have more options when it comes to accessing funds.

What are construction loan interest rates?

Construction loan interest rates are generally higher than the mortgage rates for standard home purchases, in part because in a build situation, there’s no home (yet) to secure the construction loan against, making it riskier for the lender to offer.

Is a construction loan harder to get than a traditional mortgage?

For any type of mortgage, you’ll need to qualify based on the lender’s requirements. In that sense, a construction loan is no harder to get than a traditional mortgage, provided you qualify. The process of applying for a construction loan, however, might be more difficult than your average homebuying mortgage, because you’ll need to provide more paperwork about the build and contractor, as well as follow the lender’s requirements in terms of timeline, inspections and payouts.

To determine the best construction loan lenders, Bankrate evaluated lenders based on several criteria, including affordability (annual percentage rate and fees); expediency (approval and closing times); and experience (including customer service support).